Over the years, payment cards, including credit, debit, prepaid of both an association of bank issuers (e.g. VISA) and private or proprietary brand (e.g. Target), have become one of the most common forms of payment for payment transactions. Payment cards are used to purchase nearly 4 trillion dollars worth of goods and services annually. This represents roughly one-fourth of the total U.S. economy. Almost 90% of online consumer transactions in the United States were made using a payment card. Payment cards have eclipsed other traditional methods of payment (notably checks and cash), and now are moving quickly to a dominant share of payments volume. Payment cards have a magnetic stripe which has been affixed to a piece of plastic, and is used at the payments terminal to “swipe” the payment credentials into the payments terminal. This is the predominant method by which these payments are conducted. Despite this widespread use in the United States, there are still a large number of problems to overcome in regard to payment card security, identification of consumers usage of payment cards, and the management of the data associated with payments cards transactions.
More recently, the use of so-called chip cards (also known as smartcard or EMV enabled cards, and NFC enabled cards) has also become a popular topic of discussion, and have seen some initial uses. A chip card is similar to a standard payment card; however may contain an embedded microprocessor, data storage or radio frequency communications abilities, or all of the above to either replace or enhance the functionality of the magnetic stripe. In certain implementations, the chip uses electronic cash which transfers from the consumers' card to the sellers' device. A popular smartcard initiative is the VISA Smartcard. Using the VISA Smartcard you can transfer electronic cash to your card from your bank account, and you can then use your card at various retailers and on the internet. Another popular NFC card initiative is the PayPass system from MasterCard which allows an enabled card to simply be “dipped” near the payments terminal to initiate the exchange of payments credentials.
In addition to traditional payment cards and chip cards there are companies that enable financial transactions by acting as an intermediary where no physical card is present, such as PayPal. These intermediaries perform payments processing generally referred to as “card not present” processing. Many of the these intermediaries permit consumers to establish an account quickly, and some permit consumers to transfer funds into their on-line accounts from a traditional bank account (typically via ACH transactions), and vice versa, and to use the money held by the intermediary to pay merchants for goods and services.
Referring now to FIG. 1(a), the current state of the art for payment processing using payment cards or chip cards is shown. After a buyer 11 decides to initiate a transaction 10 to buy goods and/or services from a merchant 12, the merchant 12 will transfer these goods and services 13 to the buyer 11 and the buyer 11 will transfer payment in the form of payment credential information 14 (such as a magnetic card swipe, or chip card dip, or a more manual conveyance of the payment card account information) or cash back to the merchant 12.
In a cash transaction, cash moves from the buyer 11 to the merchant 12 via face to face exchanges. In the non-cash transaction, the buyer 11 will transfer the payment information 14 to the merchant 12, adjusting the appropriate accounts of the seller and buyer. The merchant 12 generally uses a different bank or acquirer 15 from the buyer's bank or issuer 11, and in all cases, does not have direct access to the buyer's bank, so a payment card network 17 operates between the merchant bank 15 and the buyer bank 16 in order to move funds between the appropriate accounts. The payment card network can be an association open to all bank issuers and acquirers (e.g. VISA, MasterCard), an association available only to certain banks (e.g. Discover, American Express), or a proprietary network available only to certain merchants (e.g. Target, Starbucks).
Referring now to FIG. 1(b), a similar transaction using an intermediary, such a PayPal, is shown. The development of the Internet has ushered in new processes for payments, for example, the buyer 11 and merchant 12 have the ability to conduct a payment transaction 20 using the intermediary instead of presenting a physical payment card transaction process shown in FIG. 1. In this type of system, the buyer account information 22 is transferred along with the order. In the intermediary transaction the intermediary 21 holds funds received from buyer's bank 16. Upon receipt of instructions from the buyer 11 and merchant 12, the intermediary 21, transfers funds from the buyer's account to an account held by the merchant at the intermediary, potentially using the payment card network 17. From there the merchant 12 can have the funds transferred to the merchant's bank 15.
Each of the payment methods above can classified as prepaid, pay-now or pay-later systems based on the nature of the funding of the transaction. In pre-paid systems, such as those operated as stored value cards, the buyer/consumer pays before the transaction, i.e. the consumer funds the account with some form of payment and uses the prepaid account to pay for her transactions. Pay-now systems mean that the consumer's account is checked and debited at the same time when the transaction takes place, e.g. the process that occurs when debit cards linked to a bank account are used for payment. In pay-later (credit-based) systems the consumer pays after the transaction, e.g. a consumer using a credit card for a purchase, and then paying the credit card at a later date (typically 30 days later) from funds in a bank account.
Separate and apart from payment processing systems and methods, both merchants and buyers also interact through loyalty, award, coupon and/or offer programs. Loyalty and award programs are used by merchants to reward repeat consumers and to incentivize consumers to frequent the merchant. The merchant may award points that can be redeemed for goods or services or may provide members of the programs special discounts not available to non-members. The programs also allow the merchant to track the purchasing habits of the program members and to engage in targeted marketing based on those buying habits.
Offer programs, such as group discount programs, can be a type of marketing or advertising for merchants allowing them to reach consumers that might not otherwise visit the merchant. The most notable example of group offer programs is Groupon. Groupon works as an assurance contract using its web platform. Generally, if a certain number of people sign up for an offer made by a merchant through Groupon, then the offer, or deal, becomes available to all. If the predetermined minimum is not met, no one gets the offer. This reduces risk for merchants, who can treat the offers/coupons as quantity discounts, as well as sales promotion tools. Groupon makes money by keeping approximately half the money the consumer pays for the coupon. So, for example, an $80 massage could be purchased by the consumer for $40 and then Groupon and the merchant would split the $40.
That is, the merchant provides a massage valued at $80 and gets approximately $20 from Groupon for it. And the consumer gets the massage, in this example, from the retailer for which they have paid $40 to Groupon. Unlike classified advertising, the merchant does not pay any upfront cost to participate, Groupon collects personal information from willing consumers and then contacts only those consumers, primarily by a daily email, who may possibly be interested in a particular product or service.
Among the problems with the current electronic payment processing systems is security. Should a consumer's credit card number, smartcard information, intermediary id, etc. become known to a thief, that person can use the information to make fraudulent charges. The account and card numbers as well as intermediary ids are relatively fixed, i.e. are not changed often, and persist for a long time. Additionally, those numbers or ids can give access to funds in excess of those required for a particular transaction. Nor do current payment methods provide links to the actual purchases made by a consumer in merchant locations. Finally what is needed is a method for merchant programs or other offer provider to enable a merchant to process those offers through the merchant's existing electronic payments processing systems, with additional security, and the ability to identify the consumer who participates, individually.
What is needed is a secure payment processing system that is integrated with a merchant's award programs and/or offers, and uses a reliable mechanism to identify consumers.